Water Journal : Water Journal November 2011
feature article feature articles 58 NOVEMBER 2011 water need to be able to demonstrate that they have taken steps to gain an understanding of the key issues associated with these aspects of the water business. In addition, the directors themselves should assess those around them (fellow board members), as well as themselves, to ensure they are bringing into the boardroom the right level and mix of capability and understanding to acquit themselves in the role they are in. Given that utilities are producing, or are responsible for, an ever-diversifying suite of water products, the range of water quality issues that directors will need to be aware of is, similarly, also increasing. The Authors Dr Annette Davison (email: email@example.com) is Director of iConneXX Pty Ltd, a company engaged in developing and auditing risk-management plans. Bob Burford is principal, BB Tech Consulting, Sydney, NSW. He has an interest in water industry strategic issues. Scott Alden is a partner of DLA Piper, working in the Finance and Projects team in Sydney, NSW. Scott provides commercial advice to both government and private sector projects in relation to all kinds of projects, including water and other infrastructure projects. References ASX Corporate Governance Council, 2007: Corporate Governance Principles and Recommendations. 2nd Edition. Davison AD, 2011: Enterprise Risk Management. Risk appetite and risk tolerance: how robust are yours? Water 38(5): pp 65--68. NHMRC/NRMMC (National Health and Medical Research Council and National Resource Ministers Ministerial Council), 2004: Australian Drinking Water Guidelines. ISBN Online: 1864961244. Owen, 2003: Justice Owen in the HIH Royal Commission, The Failure of HIH Insurance Volume 1: A Corporate Collapse and Its Lessons, Commonwealth of Australia, April 2003 at page xxxiii and Justice Owen, Corporate Governance -- Level upon Layer, Speech to the 13th Commonwealth Law Conference 2003, Melbourne 13--17 April 2003 at page 2. Table 2. Centro reasoning and its application to state-owned water utilities. Reasoning At Consideration for Water Utilities A director is an essential component of corporate governance. Each director is placed at the apex of the structure of direction and management of a company. The higher the office that is held by a person, the greater the responsibility that falls upon him or her. The role of a director is significant as their actions may have a profound effect on the community, and not just shareholders, employees and creditors. 14 Directors need to have an understanding of water quality, not just of finances, law and water quantity. Decisions of directors in relation to water quality could have a profound effect on the community in terms of public health and wellbeing if the provision of the water product is not fit for purpose. This proceeding involves taking responsibility for documents effectively signed-off by, approved, or adopted by the directors. What is required is that such documents, before they are adopted by the directors, be read, understood and focused upon by each director with the knowledge each director has or should have by virtue of his or her position as a director. 15 A director should understand the resourcing implications for the maintenance of continued supply of fit-for-purpose water quality. A director should understand the community health and environmental implications of the supply of water that is not fit for purpose. The case law indicates that there is a core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor. There is a responsibility to read, understand and focus upon the contents of those reports which the law imposes a responsibility upon each director to approve or adopt. 16 Directors would not be expected to understand the minutiae of water quality at the coal face but they would be expected to understand where in their systems critical control points existed, ie, where if a process failed, the customer could potentially be supplied with unfit water, and the consequences of this supply of unfit water. Directors should be asking management to include water quality reports as a separate line item on their board meeting agendas. Directors should be seeking out data on water quality, including near hits to critical control points, and not just relying on data that show whether the Australian Drinking Water (or other) Guidelines or contractual obligations have been met. .....a director should acquire at least a rudimentary understanding of the business of the corporation and become familiar with the fundamentals of the business in which the corporation is engaged; a director should keep informed about the activities of the corporation; whilst not required to have a detailed awareness of day-to-day activities, a director should monitor the corporate affairs and policies; a director should maintain familiarity with the financial status of the corporation by a regular review and understanding of financial statements; a director, whilst not an auditor, should still have a questioning mind. 17 A director, if not conversant in water quality, is obligated to make it his or her business to at least understand the business of water supply and its relevant requirements. A director should have read, understood and complied with the corporation's relevant water quality policy as this effectively sets the corporation's standard of duty in this context. A board should be established which enjoys the varied wisdom, experience and expertise of persons drawn from different commercial backgrounds. Even so, a director, whatever his or her background, has a duty greater than that of simply representing a particular field of experience or expertise. A director is not relieved of the duty to pay attention to the company's affairs which might reasonably be expected to attract inquiry, even outside the area of the director's expertise. 18 A utility's board should include those who understand the engineering and scientific aspects of water quality provision, not just the provision of water quantity.
Water Journal December 2011
Water Journal September 2011